Eclectic new listing for JSE

Restaurant group joins listings boom.

The JSE is expected to welcome another new listing shortly as a restaurant group joins the bourse with a valuation of just under R500 million. 

Eclectic Brands is the holding company for nine restaurant and pub groups in South Africa including:
 
– Giovanni’s
– Green Catering & Events
– Harvard Cafe  
– Fly Boys
– Isabella’s 
– Pizza Perfect 
– Slug & Lettuce
 
The group is looking to raise R175 million through the issue of shares at R1 per share and a free float of around 36%. Should the company receive the prerequisite level of support for the listing, it will commence trading on March 25 2015.
 
According to research done by FNB Securities, sales are expected to more than double to R314 million with gross profit expected to grow to R161 million, a margin of 51.1%. The expected operating profit of R44.1 million will equate to an operating margin of 14%. 
 
Earnings per share are expected to come in at 6.14 cents per share and FNB Securities are bullish on the listing potential for the company saying: “Employing a peer valuation on a PE and EV/EBITDA multiple basis, we believe between R678.9 million and R882.3 million (R1.38 – R1.80 per share) to be a fair value range for this company. It is important to realise, however, that Eclectic is still some way from being as established as its peers. We also need to include a liquidity discount to this valuation.” 
 
They do however warn that with a free-float of only 36%, a growth strategy based on acquisition and high exposure to the overall financial health of the South African consumer, the company is without its own challenges. 
 
While the bullish scenario posed by FNB Securities does sound positive for Eclectic, market commentators who spoke to Moneyweb did however caution against immediately drawing comparisons between other restaurant and fast-food groups like Famous Brands. They expressed concerns that a number of the larger traditional underwriters of new listings had avoided the counter on the premise of a weak outlook for consumers and a valuation which appeared to be “stretched”. 

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